European governments close ranks behind euro
3 June 2005, BERLIN - Governments across the 12-member eurozone moved to close ranks behind the euro on Friday in a bid to head off the crisis engulfing the common currency following the French and Dutch rejections of the European constitution.
3 June 2005
BERLIN - Governments across the 12-member eurozone moved to close ranks behind the euro on Friday in a bid to head off the crisis engulfing the common currency following the French and Dutch rejections of the European constitution.
"The euro has proven itself and there is no reason at all for any discussion (about its future)", declared the German government chief spokesman, Bela Anda, on Friday.
At the same time, finance ministry spokesman Stefan Giffler said the euro's recent volatility "was an overreaction of the markets to the referendums."
Indeed, the euro is ending a very turbulent week following an upsurge in concerns about the common currency's future in the wake of this week's firm rejection of the European constitution in France and the Netherlands, as well as worries that the political establishment were having doubts about single money's prospects.
But just one day after ECB chief Jean-Claude Trichet dismissed any talk that Europe's currency union could fall apart as "completely absurd", Italy's welfare minister Roberto Maroni said the nation should drop the euro and return to the lira.
Trichet told a press conference that dumping the euro was about as realistic as a big US state abandoning the dollar.
Having tumbled to an eight-month low of USD 1.22, the euro took another big knock on Friday in the wake of Maroni's remarks, before managing to creep back up to within reach of USD 1.23 in early afternoon trading. This was also before the release of disappointing US employment data.
After hitting a record high of USD 1.3666 at the end of last year, the euro has been drifting down ever since as concerns have emerged that growth in the 12-member eurozone was slowing and that the US economy will again outshine Europe. The euro has lost about 10 percent of its value in recent months.
But coming from the Eurosceptic Northern League, which is a member of Berlusconi's ruling coalition, Maroni's comments were quickly downplayed. Maroni said Italy should hold a referendum on whether to swap the euro for the lira.
However, the market reaction underscores the nervousness among investors about the implications of the 'no' vote in the French and Dutch referendums, which have cast a shadow over European integration and Brussels' plans for enlarging European Union membership.
Faltering eurozone growth and record high unemployment are also increasing the pressure on the eurozone's member states.
At its meeting on Thursday, the ECB agreed to lower its growth forecast for the currency bloc to 1.4 percent from a previous 1.6 percent.
Added to the current political uncertainty facing the EU has been German chancellor Gerhard Schroeder's dramatic announcement last month that he wanted early elections in Europe's biggest economy.
Earlier in the week, German finance minister Hans Eichel and the head of the nation's central bank, the Bundesbank, Axel Weber, were forced to hose down a report in the German weekly Stern that they had raised the euro's possible demise in talks about the aftermath of the 'no' votes in France and the Netherlands.
The Stern report also triggered a sell off of the euro on foreign exchange markets.
"Rumours about talks in the finance ministry over an end to the currency union have again put pressure on the euro's value," said Folker Hellmeyer of the Bremer Landesbank.
The finance ministry in Berlin said Eichel saw no danger of a euro collapse and underlined that he had no knowledge of the minutes or report on which Stern based its story.
But Weber went even further saying in a statement that he would never take part "in such an absurd discussion".
"The euro is a success story," he said.
Berlin's Finance Ministry, according to the report, says Germany has lost what used to be its interest rate advantage under the old Deutsche mark.
Eichel and Weber also discussed scenarios under which the euro, which is used by 12 of the European Union's 25 countries, could possibly fail and force its members to revert back to their old, national currencies, said Stern.
On Thursday, at his regular monthly press conference in Frankfurt, ECB chief Trichet echoed the views of other European officials, waving off expressions of concerns about the common currency.
"I don't comment on absurd questions;" he said responding to a reporter's question.
"If your question is whether or not there is a likelihood for California or Alaska or Florida to have its own currency, I would react in exactly the same fashion - complete nonsense," he said.
Subject: German news